Fannie's preferred series E shares, with a coupon of 5.10% and a par value of $50, were up 34% to close at $6.99. Freddie's preferred series Z shares, with a coupon of 5.375% and a par value of $25, were up 6% to $3.20.
Still, the future of the two companies is still quite uncertain, as neither Congress nor President Obama have settled on a way forward for the U.S. housing market.
"Having 90% of all mortgage loan originations backed by Fannie and Freddie is a bad thing," according to Kevin Petrasic, a partner in the Global Banking and Payments Systems practice of Paul Hastings in Washington. Then again, a radical change in the mortgage finance market would be extremely risky in the midst of a fragile economic recovery.
"One of the central concerns from a macro perspective of FHFA is trying to make sure that the solution for Fannie and Freddie allows for a continued stable housing market," Petrasic says.
So investors can expect this story to play out over a period of many years. Meanwhile, some day-traders are making a killing on Freddie and Fannie common shares. Investors who go in for the preferred shares, hold them for an extended period and then have the good fortune of having the dividend payments resume, will be in for quite a bit of gravy some day.
More Happy Money From the Fed
Investors were quite pleased with the statement from the
Federal Open Market Committee
(FOMC), saying the
would continue making monthly purchases of $85 billion in long-term securities in an effort to hold long-term rates down.
The Fed has kept the short-term federal funds in a range of zero to 0.25% since late 2008. The FOMC once again said it expected the central bank's "highly accommodative" policy to remain appropriate as long as the U.S. unemployment rate remains above 6.5%, assuming inflation is kept in check. The Labor Department on March 8 said the unemployment rate improved to 7.7% in February from 7.9% in January.
The FOMC also said that, since its last meeting in January, economic data "suggest a return to moderate economic growth following a pause late last year."
The broad indices saw solid gains. The
KBW Bank Index
was up 0.5% to close at 57.12, with all but three of the index components rising for the session.
-- Written by Philip van Doorn in Jupiter, Fla.